Friday, March 25, 2016

Credit Card Debt In The United States Is Approaching A Trillion Dollars

For the first time ever, total credit
card debt in the United States is approaching a trillion dollars.
Instead of learning painful lessons from the last recession, Americans
continue to make the same horrendous financial mistakes over and over
again. In fact, U.S. consumers accumulated more new credit card debt
during the 4th quarter of 2015 than they did during the years of 2009,
2010 and 2011 combined. That is absolutely insanity,
because other than payday loans, credit card debt is just about the
worst kind of debt that consumers could possibly go into. Extremely
high rates of interest, combined with severe penalties and fees, can
choke the financial life out of almost any family in no time at all.

These days, most Americans use credit cards for various purposes, and they can be very convenient.

And if you pay them off every single month, they don’t become a problem.

Unfortunately, a lot of people are not doing this. According to CNBC, total U.S. credit card debt rose by an astounding 71 billion dollars last year alone…

Last year, credit card debt in the U.S. surged by approximately $71 billion to $917.7 billion, according to a new study from CardHub.com.
The research also found that most of the debt accrued in 2015 came in
the fourth quarter, when Americans tacked on more than $52 billion.

“With 7 of the past 10 quarters
reflecting year-over-year regression in consumer performance, evidence
is mounting to support the notion that credit card users are reverting
to pre-downturn bad habits,” CardHub CEO Odysseas Papadimitriou said in a
statement.

And as noted above, things were particularly gruesome during the 4th quarter of last year.

According to Alternet, Americans added more credit card debt during those three months than during the entire years of 2009, 2010 and 2011 combined…

Not since we headed into the Great
Recession of 2008 have we been quite so loosey-goosey with our credit
cards, racking up debt with stunning speed. Of our 4Q totals, CardHub
notes, “during this one quarter, we added more debt than in 2009, 2010 and 2011 put together.” That brings dollars owed to credit card companies by each debt-saddled American family up to $7,879, the highest since the Great Recession.

I can’t even begin to describe how
unwise this is. When I was in my twenties, I made the same mistakes
that so many other Americans are making right now. I very foolishly
racked up large balances on my credit cards, and it took years of
extremely painful payments to fix those mistakes.

In America today, 37 percent of all
households maintain credit card balances from month to month, and the
average level of credit card debt for those households is $15,700. The
following comes from CBS Minnesota…

According to NerdWallet,
37 percent of American households have credit card debt, which is
defined as not paying off the full balance every month. Using data from
the Federal Reserve of New York, U.S. Census and its own poll,
NerdWallet found the average balance for those in credit debt is
$15,700.

What most people don’t realize is that
by letting balances run from month to month, you can end up paying just
about as much in interest as you did for the original purchases.

For the sake of simplicity in
calculating the cost of the average credit card debt, let’s assume an
APR of 16% and a fixed payment. We’ll also assume a minimum payment of
2% of the principal balance of $15,762, the average as of the end of
2015, or $315.

Based on those terms — and assuming you
don’t add any more to your credit card balance — it would take 84
months, or seven years, to pay off the balance in full. During that
time, you’ll pay $10,402 in interest — about two-thirds of the original
balance — for a total of $26,164. This averages out to about $124 in
interest per month.

The scenario above assumes that all
payments are made on time. But a single late payment can trigger higher
interest rates, penalties and fees that can be absolutely suffocating.

In fact, some people end up paying back
three, four or five times as much as they originally borrowed to the
credit card companies.

If you use credit cards for convenience
or to buy things online or to automatically pay bills, that is fine.
Just don’t let balances accumulate. As you can see, that can be
financial suicide.

And as we head into a new global recession,
you definitely don’t want to be saddled with high levels of debt. All
of us have little luxuries that we can cut back on, and now is not the
time to be living on the financial edge.

Just look at some of the troubling signs that we have seen in the news in recent days…

-The U.S. oil and rig count just dropped to the lowest level ever recorded

-One Houston CEO told employees that he was laying off that we have entered a “depression”

-It is being reported that 35 percent of all oil and gas companies around the world are at risk of falling into bankruptcy